What is the primary purpose of demand forecasting?

The primary purpose of demand forecasting is to predict future customer demand for products or services. Accurate demand forecasting allows businesses to align their production, inventory, and staffing levels with anticipated market needs. This is crucial for ensuring that they can meet customer demands without overproducing, which can lead to excess inventory and associated costs, or underproducing, which can result in missed sales opportunities and dissatisfied customers.

By using historical data, market trends, and other analytical methods, companies can anticipate fluctuations in demand, making informed decisions that drive operational efficiency and better financial performance. This capability is fundamental to effective supply chain management and overall business strategy, enabling organizations to respond proactively to market changes.